Grey to Green – Financing the green transition
Context:
- The National Bank for Financing Infrastructure and Development (NaBFID) facilitates the National Monetization Pipeline (NMP) implementation and project finance in the National Infrastructure Pipeline (NIP).
- 60% of the Rs 25,000 crore in loans that NaBFID approved to fund India’s infrastructure needs have been made available.
- The bank has disclosed plans to introduce buyout financing options, engage in Infrastructure Investment Trusts (InVITs), and refinance debt.
Integration of Climate Change and the National Infrastructure Pipeline:
- The primary means by which climate risk is taken into account in NIP is via planning for immediate physical hazards such catastrophes and extreme events.
- The development of resilience against recurring physical risks like rising temperatures or a rapid loss of biodiversity finds a place in the broad policy recommendations and inclusive climate infrastructure.
- Contrary to the global trend towards employing nature-based solutions and embracing green and blue infrastructure, NIP continues to promote traditional grey infrastructure.
- For instance, it encourages the improvement of stormwater drainage infrastructure while discouraging the incorporation of green infrastructure, such as green roofs, which are used by international cities to reduce flooding.
G7 programme to promote financial support for climate-based infrastructure:
- The G7 has endorsed requiring banks and companies to make declarations under the task force on financial disclosures related to climate change.
- A step in the right direction for infrastructure based on climate change is the expansion of corporate responsibility and sustainability reporting (BRSR) to the top 1,000 publicly traded firms.
- Though they continue to be mostly symbolic and the subject of a few pronouncements, efforts to mainstream sustainability and climate resiliency are still largely symbolic.
- It takes time to operationalize these concepts and mainstream their application, and lack of information makes it difficult. Therefore, ensuring that funding is going to viable projects may be difficult.
India’s infrastructure is built on climate change:
- Indian regulators have announced a system for green deposits and blue/green bonds. Additionally, they intend to provide advice on how to conduct climate stress tests.
- Finding relevant climate hazards, connecting them to financial issues, and quantifying them requires a lot of work. Credit risks must therefore also be considered.
- In order to address the financial and infrastructural issues related to climate change, NaBFID must focus on structural measures that improve asset provisioning and quality as well as produce returns on investment.
The private sector’s role in infrastructure development based on climate:
- PPPs, which incorporate private financing for infrastructure projects, can occasionally lead to cost overruns and delays. India’s PPP experience has been inconsistent.
- NaBFID is in an excellent position to accept recommendations for pre-planning and site investigation investments. To ensure the effectiveness of PPPs, NaBFID should use a collaborative planning process with departments and downstream contractors involved.
- To proceed with buyout financing, it is also necessary to assess how broadly-based growth and credit demand would be.
Moving forward:
- NaBFID must make use of the cutting-edge financial mechanisms that have arisen in order to mainstream climate adaptation and mitigation.
- All three bond categories—green bonds, bonds connected to sustainability, and transition bonds—seek to reroute international financial flows to programmes that support resilience and climate change mitigation. Effective techniques for raising money can include bonds with a wide purpose or usage of income.
- Through the private placement issuances of NaBFID, additional green money may enter the infrastructure sector as a result of the success of India’s sovereign green bond. This may be in line with their intention to attract indirect finance and private sector investment.
Conclusion:
- Diverse investors would be attracted by creative financing structures that use safeguards at the entity and project levels to direct money to the correct initiatives, enabling scalability of finance.
- For instance, the majority of models for transition bonds provide a transition strategy at the entity level. Disclosure criteria like those created by international organisations like the Task Force on Climate Related Financial Disclosures would be beneficial to increase transparency, credibility, and prevent the risks of greenwashing.
